The rebel Liberation Tigers of Tamil Eelam (LTTE) warned of "grave consequences" following Saturday's sinking of one of their merchant vessels that also left the fate of the 12-member crew in doubt.

"...if any harm were to befall the crew of the LTTE vessel then the sole responsibility for the events lie with the Sri Lanka Navy and this incident would have very grave consequences," the LTTE said.

The sea has proved a flashpoint for Tamil Tigers and government forces who entered into a Norwegian-brokered truce on February 23 last year as the ceasefire does not extend fully to activities at sea.

The Tigers rebels have a ferocious sea-going capability which includes suicide bombers. In February three guerrillas blew themselves up and took down their boat loaded with an anti-aircraft gun rather than be arrested by the navy.

Despite the ceasefire, the Tigers have also been accused of carrying out a string of attacks against military informants and rival political activists. At least 30 killings have been blamed on the Tigers during the truce.

On Saturday, a top leader of a rival Tamil group was shot dead in the northern peninsula of Jaffna -- the most senior politician to have been killed during the truce.

On April 21 the Tigers announced they were suspending their participation in peace talks and boycotting an aid pledging conference in Tokyo because the government had failed to deliver on its promises.

The privately-run Sunday Island newspaper in an editorial headlined "Danger signals" said recent events suggested the Tigers were heading for a resumption of war.

The paper noted that the LTTE was against the government's policy of winning an "international safety net" while talking with the rebels. Four previous peace bids ended in failure and more bloodshed.

The paper called for greater Indian support to Sri Lanka in case of fresh fighting.

"While she (India) has been most helpful in recent years in many matters, more substantial assistance may become necessary if the Tigers are heading for a resumption of war as many believe they are," the Sunday Island said.

A day before the latest upsurge in violence, President Chandrika Kumaratunga's party warned that the country could be slipping back to war.

Kumaratunga's People's Alliance (PA), which sits as the opposition in parliament, said it wanted the cohabitation government of Prime Minister Ranil Wickremesinghe to ensure that security forces were capable of meeting any threat.

Diplomatic sources said they did not expect an immediate outbreak of hostilities, but it would be a challenge for the Norwegian peace brokers to bring the Tigers onboard and resume talks.

Both the Colombo government and its international backers had expected that pledges of millions of dollars to rebuild embattled northern and eastern regions made at the aid conference in Tokyo last week would woo the Tigers back to the table.